markets. u.s. equity futures are rebounding handily up 116 points. when you put it in perspective this is after a decline of more than 550 dow points. yesterday the dow dropped by more than 2%. it was its worst one day percentage drop since november of last year. in fact, all 30 dow components were in the red. >> 550 for two days. >> yeah. over two days we were down more than 560. >> yeah. >> but the dow was down more than 5% since its may closing high. that is something to start paying attention to. all those market participants who have said that they would buy when you saw the market down by 5% to 10%, well, here's their opportunity. again, if you put those declines together from the last two sessions, the dow and the s&p 500 wiped out all of their gains from may. and from june. by the way, the vix, that's the fear gauge. it spoked near 20. it hit its highest level of the year. this was something to watch. it wasn't just equities, guys. this was across the board. all of the market. bonds. oil. gold. silver. silver was even deeper declines

than gold. >> i was surprised gold would sell off the way it did. >> i'm not surprised. that's what it's been doing. >> it has been. >> it's been doing that -- as stocks go down it's been doing that. i think the way i look at it, i think the reason gold went up to 1900 was because of the global money print. >> quick liquidity everywhere. >> it started going down before we knew the world was going to stop. >> emerging markets got hit very hard yesterday. again, that was where a lot of the liquidity had gone. >> before we knew the world was going to stop. stocks on track for their fourth weekly decline in the last five weeks. all the main s&p sectors finished sharply in the red yesterday but defensive names have been the hardest hit. take a look. during the last two sessions, y utilities and telecoms down more than 4%. each total volume on the nyse ended more than 4.5 billion shares. it was the second heaviest volume day of the year. we've had some light days, by the way. you can see what's been going on. >> all the guys that have been

looking for the correction, what's classic is when you get to 5%, very few will say, okay, now is the time. they'll probably want to see a little bit more before they say do it. usually it gets all the way back to where it was. >> we're at about 5. the question is if we hang on today. >> if we hang on today is important. >> if we don't? >> think about it. remember, in the past sometimes if you have a ragged friday at the close, then monday is awful. >> because everybody's sitting around all weekend saying what should i do? call my broker monday morning. >> overseas markets open sunday night. we're at five. if we don't hold the plus 100 that we have, one of those sickening sort of closes, then we're going to be between five and ten. i don't know whether people will try -- >> call in 2:00 or 3:00 this afternoon. >> this is a test for the market whether it's time to put more money to work or we've had a nice gain. >> i put money in all the kids' college funds yesterday.

>> don't tell us. i don't think -- i don't want to say what any of us did. >> take it back. >> i did. i mean, i don't care if it goes down from here. >> okay. i told andrew, would you buy here? i said maybe you take a quarter of your dry powder. >> i don't care if it goes down. >> if andrew did put a quarter of what he's got ready to invest, that might help the market overall. >> just a quarter. >> today could be a very important day based on -- >> i think it will be. honestly even though we're up 116 points right now, i think that doesn't tell you a whole lot about where we end the session. it could be a pretty volatile day. >> this is about, at this point, 5%, when the fed indicated, this is about what we think for the short term people in there because the fed is in there. we know sooner or later the fed has to get out for the right reasons and let the market eventually go higher. the market is going to try to stand on its own. initially this is about what you'd expect. >> i think there's going to be a lot of retail folks out there who are going to look at the headlines.

>> buy or sell? >> i went over to 30 rock yesterday. ran into three or four friends of mine. some of whom you know. who said, should i get out? >> are they in? >> think i should just sell a little bit? i said, no, no, no. >> 401(k)? >> i think they have a little bit of stock. i said, no, no, no, no. hang tight. >> let's bring you up to date on some of the other markets. i think if the 10-year didn't stabilize at around 2.4, i think it's got a 2.3 handle -- it's 2.4 now. this is something we've got to watch. if this were to go let's say 2.5 or 2.6 then i think you'd see the markets, perhaps, take a look at that and go, whoa. let's look at the 30-year. that got up to levels yesterday we haven't seen in a while. about 3.5 yesterday. >> historically these levels don't matter. it's just how quickly they've gotten to these yields. >> right. we heard people that do have leverage or people that are on the wrong side of these things, you don't know where -- somebody always has too much money risk on a certain trade.

they blow up sometimes. >> we have doug desheel on today. he pointed out if you look at losses over the last week, it wiped out years of investment gains for some people. you start looking at things like, whoa, these are rapid moves. >> i'm glad we have him on. he knows a lot. then i said, he knows too much sometimes for me. just pick -- >> i loved his notes. he started talking about the fomc looking at their mark to market -- >> quantifying gains. find the stuff you understood and you can benefit from it. leave the other stuff. some other people, rocket scientists are also listening. >> how much do you believe. as i was reading through morning money just before the show, michael obushowski from north shore asset management saying a lot going on right now is driven on algorithms, seizing on news items. covered from the wires. >> i do believe that. i spoke with ron barren last night. he said the same thing. he said, don't worry, this turbulence, volatility is going to calm down. he thinks it will be sooner rather than later. he talked about how what he

thinks is happening is exactly that. computer trading is part of it. the other thing we're only five years out from a massive recession. if he's still looking at this as the same way, we'll talk more about what else he said. >> i talked to you about how machines and computers are getting smarter and smarter. get used to a lot of things in the world happening because computers see certain things. algorithms. they're designed to do things humans used to decide on. this is just something that hopefully they're -- let's look at the dollar. there's no guarantee that they will be. there's no reason for them to treat us nicely. i'm still surprised. the dollar -- sometimes i think we should look at the dollar index. that might be better. because the euro you wouldn't know the dollar was as strong as it had been given the euro is at 1.32. what happened in greece? something break down there? why does everything happen -- some coalition. they may need a vote. brazil, people are going crazy down there even though the world

cup is coming. china, you worry about, too. here's gold. what we saw yesterday. i think a lot of people would not have believed it would have a 12 handle ever again. it tdoes. some people we've heard 800. if you look at that chart. >> look at that drop this year. >> it's almost -- that was before we started thinking they were fwoigoing to taper. some of these markets are really smart. collective wisdom. for whatever reason gold has not been the place to be. silver, which was -- people were buying it at $30 an ounce. >> that was an even steeper ee decline in percentage drop. >> under $20 right now. one thing i never thought i would be happy to see oil hold up. but you would think that maybe the oil market would be one of the markets that would be most sensitive if we really were going to see the globe slow down a lot from the wealth effect losses we're seeing. 95 makes me think things are pretty healthy. >> ron baron, he has a pretty calming voice. i wondered how he felt yesterday

after all this. >> it helps to be worth a couple billion dollars to be calm. >> you know what he said? valuations are attractive still. businesses are doing well. the economy is strengthening. get this. he says even with $20 billion, he opportunity have enough money to take advantage of all the opportunities here. >> 20. it's not all his. >> he says he's not looking at this point like, look, maybe the rate of the market has slowed down. we're not talking about three year doubles at this point. he says for his funds he's looking more five or six years for doubling. maybe nine or ten for the market. still talking about a very strong market and a place he sees great opportunity. >> these are times you try to keep your cool. >> got to have some powder. got to have dry powder. >> i wish we had all the guys looking for -- if they were to come on and say no, no, no, i'd feel better. they're never able to pull the trigger. want to go overseas? >> i think we should. for a moment. >> take us there. >> i hear this whole thing in china is kind of just not just ben bernanke creating some

problems. let's talk about trading in asia and europe today. ross westgate standing by in london. first let's get to singapore. >> yes. well, volatility, you mentioned that was the name of the game out here in asia. very volatile day this friday. we rounded off a rough week. the asian markets, there was some good news at the settlement. they regained some composure, bounced off session lows. japan led the recovery up by 1.7%. this is the first weekly gain in five weeks. good news there. weaker yen helps. markets not only having to contend with ben bernanke and the fed, tapering fears, emanating from your side of the world. but also some pretty negative regional dynamics as well. case in point, some stress in china's interbank markets. well, that started to ease because reportedly the central bank in china did pump 50 billion yuan into the financial

system. that didn't prevent the shanghai composite tumbling. china is the market you have to watch. china growth concerns are the clear and present danger now for our region, if not on a global basis. hsbc cut their gdp forecast for china this year to 7.4% from 8.2% prior. and downgraded china equities to neutral. so some stabilization at the close. but asian equities i would say are still looking very, very vulnerable as we head into a new week. back to you now. >> as an aside, you have the worst pollution in the world right now, i see. it could last for weeks. is it bad outside? can you tell how bad it is? >> i can tell you this. palpably and visibly and officially this is now the worst air quality in singapore's history. it's all coming from the forest fires in indonesia.

something of a blame game going on. but it is very worrying, that's right. especially for people who are vulnerable, like pregnant moms. and my kids. i have a 4-year-old little boy. he's mildly asthmatic. it's bad news for people with kids, parents, et cetera. you hope to see a resolution quickly. or some clouds seeding. >> very good. go ahead. >> one question. i was reading some stuff overnight. there's been a lot of focus on the shibor compared to the libor of china. the fact it's gone up so much, why are people anxious about interbank lending among chinese banks? i would think everyone would believe they're supported by the government anyway so it wouldn't matter? if you think the libor is a fake number, the shibor is a fake number. am i wrong? >> i think it speaks to a broader problem about credit quality. you know, one of the big unknowns in the china markets if not the broader economy is the exact extent of credit

worthiness of some of the banks who are holding arguably a lot of bad debt. so some are saying that this is just an accident waiting to happen. the china bears are saying this. not now. the situation seems to be manageable. but perhaps in the next two to three years somebody told me not too long ago that we could see a credit event in china that could make lehman look like a late payment on a credit card. it's really attempts by the authorities to get -- steal a march on that situation of credit quality. >> scaring us this morning. thank you for your analysis. >> don't lock it in. >> we'll head over to london right now to see ross westgate. what to you got? >> there weren't any late payments, andrew. we're trying to claw back from yesterday's losses right now here. in fact, we're on about the best levels of the day. 7-2 advancers up to te kledecli. follows losses yesterday of 3% and more across the european

indices bulls. the ftse having its biggest one day loss since september 2011. talk about the dow off. the ftse is actually off 10% from the highs that we hit in may. of course, we've seen much bigger falls in asia as well. ftse 100 today up about a percent. cac up about a percent. clawed back about a third of yesterday's losses. x etra dax up along with the ftse mib. yesterday we were driven by basic resources, the biggest seller, because of fears about china. and the weakness there in the growth numbers. technology is the weakest there. oracle oracle not necessarily helping that out. pr still fairly defensive in telecoms. best sector performers. big jump up in bond yields across the region. spanish yields up 7% to 4.85. a little lower today.

4.79. gilt yields continue to climb higher, 2.33. that's the highest since march 2012. you mention eed greece. big discussion split in the broadcaster. reports greece is facing a funding crisis, denied by david lipton of the imf to us. bund yields also higher. all driven, of course, of what happens to u.s. treasury yields as well. a quick reminder where we tand stand on the currencies front. clearly the aussie today rebounded from a 33-month low. dollar a little bit weaker. yesterday on the yen 98.29. euro/dollar not moving an awful lot. what we are seeing is a lot of people have burroed euro and yen

to invest in emerging markets. they sold out of their positions. one of the reasons why yen and europe haven't been sold off an awful lot even as the dollar has apreesh yapted among emerging market currencies. >> we are watching everything happening on the boards behind you. watching the markets incredibly closely after everything that's happened the last couple days. joining us now to talk more about it is ed kian with quantitative management associates. rich steinberg of steinberg global asset management. ed, we've been talking for a while about how there could be a selloff, 5% to 10%. we've got 5%. does it stop here or do we go a little further. >> basically the fed told us they're going to take the training wheels off over the next year. as long as the economy is strong enough to support it, i think the economy is strong enough to support it. the only reason that isn't obvious to everybody is because of the tremendous amount of fiscal drag that came from the tax increases and the spending cuts we've had this year. that's going to wear off. by the time we get into next year, by the time the fed really does take the training wheels off, i think we're going to be growing at 4% or more.

>> you think the fed is making all of these noises right now for the right reasons? they see the economy growing and you believe that, too? >> yes. i think they have been afraid of 1937. that is they didn't want to move prematurely and send us back into another great recession. they have been pumping money in, but now i think they're saying, we think that the market, the economy, is strong enough to make it on its own. not necessarily right now, but over the course of the next year. i think that judgment is going to turn out to be correct. i think we'll see a much stronger kmu, stronger earnings, stronger market. >> it's data dependent, too. here i am, i'm going to talk about whether they could go back to 85 if they ever do taper the 85. even if it's not bernanke, if things did slow down a little and they had tapered a little, if there's anyone who would add it back, it would be janet yellin. can't we think the fed is -- >> still there to catch us? >> janet yellin is running amok behind the bike.

>> i'm thinking of the man going over the grand canyon this weekend. >> people have taken the wrong idea from the tremendous correlation between the fed balance sheet and s&p 500. people said, okay, if you taper the balance sheet you're going to also taper the market. i think the key there is that the market knows that the fed is there to back them up. >> janet yellin has got to get in shape. she's got to chase that bike. >> they do slow down the fed will be there to help us out. i don't think it's going to be necessary. i think the economy is actually plenty robust. once you take away some of that fiscal drag you're going to have a much stronger economy next year and much smaller budget deficit. >> did you buy yesterday or are you -- >> i'm already all in. i've been all in for quite a while. >> oh, boy. you're conflicted. >> so we took a few losses yesterday. but we are very confident that -- i think actually the united states stock market is the best asset class in the world right now. >> one thing we still have going for us, 2.5% in one day, it's a lot. but we still --

>> we've been up a lot. >> we have. but the media and people at home, it's still 353. we're still talking 353 points. we don't put it -- in percentage terms it happens all the time. >> it doesn't happen all the time lately. >> 550 in two days. >> 10% corrections are normal, ordinary, regular part of market behavior. we haven't had one in a long, long time. >> we haven't had a normal market. we haven't had moves. >> the reason is -- >> very small correction. >> the reason the ten usually works and is normal is because it scares the crap out of everyone as is happening. at that ten low you think it's over. you think we're going back to 1937. >> that's right. corrections happen partially because guys like me who are all in aren't going to have new cash to put in if i'd like to. you have a little pullback when you get some bad news. you wait for some people who do have dry powder, fresh cash to put in. i think that's what's going to happen over the next couple days. people waiting for the correction will finally put some money in. you'll see some stabilization.

i think over time you'll see more and more evidence of the strength of the economy, the strength of corporate earnings. that's going to be the key thing that will rappepel the market higher. >> are you feeling optimistic and as calm about things? >> not as calm. the last couple days were very painful. we did put some money to work yesterday especially in the dividend strategy we run because we had some dry powder. i am concerned about the 2.5% 10-year note level. a lot of algorithms, a lot of program trading could kick in in some asset rebalancing. the economy is getting better. but i think you have to slowly put your money that you have on the sidelines into cash. yesterday money only went to cash. you know, the commodity complex sold off. the bonds sold off. equities sold off. emerging markets got hammered. i think there's more dry powder on the sidelines. i think we just have to see if certain levels hold. but we're still very constructive going forward with

a 1650 to 1700 s&p target. the problem is this. when volatility increases, anxiety increases. and investors seek certitude. the fed did not give us full certitude because they were talking one thing while the market was bringing rates up ahead of them. i think it's something we have to watch and just be flexible right now. >> you bring up an interesting point. the algorithms and the computerized trading. we've talked, you know, we were yus talking about someone else who was mentioned in morning money. i know that's something ron baron mentioned. doug cass was just talking about that. how big of a problem do you think those computer trading programs are? >> i think it's a problem, but i think there's another part you haven't talked about. which are there's been some huge etf separate account managers that have taken in enormous money over the last couple years. some firms have grown from a billion to 14 to $18 billion. and essentially own 10 or 12

etfs. so when you have a shift in some of the blackbox algorithms, even in the etf space, things happen quicker than they used to in the past. especially with the amount of money that has flown into fixed income etfs. you know, before you would go and you would ask for three bids for a bond. you would work out of your bond portfolio. now you can slam out of an etf, fixed income etf, and really move markets which causes the programs to kick in. and that's where i see some risk to the market at the short run. i think it'll get resolved, but it's something that oftentimes when you have selloffs like this, we exceed on the downside before people have bravery to put money to work. >> if this is a situation where you think it's a short-term problem, it sounds like a long-tlong long-term buying opportunity. correct? >> absolutely. what we're doing now is kind of sitting with our cash in our catcher's mitt and letting some prices come to us.

in the dividend space we're underweighting utilities and tem comes. the big indexes are overweight in that air wra. as the other guest said, as the economy gets better, you can find names that give you cash flow in industrials, in the oil and energy complex, without the same interest rate risk, if you will. >> richard, in terms of timing, timing is never a great situation, but to the extent you're going to put more money into the market, do you sit around and put some more money in today? do you still believe that come monday, come next week, or perhaps over the summer, it gets worse before it gets better? how do you think about that issue? >> i think you have to really as an investor look to see where your asset allocation is. andrew, i think you have to take advantage. warren buffett has this express where he says i'd rather have an 18% choppy return than a 12% smooth return. i think you need to use the choppiness we could have over the next short run, and we

could, to basically accumulate stocks that you like. the problem is, a lot of times people are buying things and they're not really continuing to follow them. and they're also just buying them blindly. i think in this market, in this volatility, you have to really know what you own. >> rich or ed, it sounds like, i mean, the key thing here for you, rich, might be the 10-year. you didn't really tell us whether you think it is going to 2.5. it's at 2.39. it's up a lot. does it consolidate that it got to 2.4 and then maybe test 2.3 again or 2.25? if it does go to 2.5 that would be problematic, right, rich? >> yeah. i'm concerned. i think it could touch it but i don't think it's going to exceed it in a big way. don't forget, 2.5% still isn't competition if the market sells off -- >> that would be scary. like you said, a lot of people have it built in that that's where they shift assets. >> i think we will see 2.5. >> it's a concern of mine. >> i think we will see 2.5.

i think we're going to be up to 3 over the next year or so. >> over the next year or is so. not the next week. >> i think it will be relatively orderly. inflation is still low which is a critical component here. if inflation stays under 2% where it is today, 3% or so 10-year bond would be a perfectly normal price. >> the fed is not trying to sell any bonds. they just might be buying less. they haven't done that yet. >> they're actually buying it shall the way the deficit is shrinking they're buying as much as the treasury is issuing. they have to taper at some point. >> the individual lvigilantes w come back. >> you said you're already all in. have you been shifting money around from one asset to another? >> we have moved a bit of money this year from international markets to the u.s. market. we have lightened up a little bit on our emerging market exposure. still like that as a strategic allocation. but we've been a little cautious for all the reasons you see in the headlines between china and brazil and every place else.

a little more cautious short term on emerging markets than we have been. >> ed, thank you for coming in. rich, thank you for joining us early this morning, too. great to talk to both of you. we should say this week's global market selloff is a major point of discussion at a forum in st. petersburg, russia, today. think of it as a gathering of -- might be russia's version of davos. cnbc is there. steve? >> yeah. plenty of big stories here, andrew. good to see you and the team as well today. all of the big players here, had a good chat with john chambers from cisco. morris taylor was here bashing the french once more about their work ethic as well. a lot of big chats amongst government circles about whether they're trying to weaken the ruble or not. i spoke to the deputy prime minister. had a one on one. he said categorically these policies for the ruble, they're not about moving it one way or the other. it's about domestic politics. my goodness me, they've got some problems. because their economy that was growing at 8% per year on average between 2000 and 2008 is

now growing sub 2.5%. they're really concerned what that means for the broader picture as well. we've also spoken to the oligarchs. various estimates between 25 and 35 in terms of the world's richest. roughlie lly estimated to be wo- he said it is appropriate given the economic conditions for the fed to start thinking about that. we are seeing a change in the economic conditions. this st is the man, of course, a massive investor in apple. about $100 million invested there. was an early adopter of facebook investing in 2009. he cleared when he sold some of the ipo around about $1 billion past in profit. still a holder of that stock as well. we've also been speaking to the man who is one of the richest men, again, $6 billion we think this chap's worth. your previous guests were talking about corrections in the market and how these are natural cycles as well. talking about the commodity prices and bearing in mind he's a man who controls one of the

biggest aluminum companies in the world, he said that the commodities are also going through a natural cycle. let's listen in. >> investors should -- should be more, how to say, they should accept reality. >> right, right. >> you could not change economy. you should look at basic supply, demand and the balance and estimate, you know, what would be future for each sector. and then it would be easy for them. >> now, guys, i've got a little treat for you as well. you'll forgive my michael jackson moment. you'll understand why. we're talking about commodities, aren't we? take a look at what i've got here. i'm going to put this on a special camera for you. this is a genuine first on snbc. a satchi medal for pairs figure skating. short of me doing a blades of glory moment i don't think i'm

going to get my hands on this. this is a satchi gold medal. how about that? pairs figure skating. we're going to get our lycra on and start practicing. >> don't show that to putin. you'll never get it back. keep an eye on that thing. >> i bet they're wishing they would have made those medals a little later. because if you look at prices now, that thing must have been made at least a month ago. look at prices now. it could have been a lot cheaper. >> it's not real gold. >> i'm still haunted by the images of steve and lycra. >> one way traffic. there you go. >> he said he was getting in lycra. a flightenirightening image for >> a frightening thought, isn't it? >> have fun in st. petersburg. see you soon. >> he should drive over to tampa. beautiful. a lot to see. >> in st. petersburg? tampa? yeah. florida. i get it. >> is he in -- all right.

russia. >> he's in trouble because of your putin comments, too. >> he is. that's why i did it. i know. stick him with an umbrella. when we come back, fears about china's economy also playing a part in this week's global market selloff. we have a live report from beijing right after this. first, though, a stock to watch this morning. oracle. the company actually missed expectations for software sales and subscriptions for the second straight quarter. oracle blaming weakness on disappointing sales in asia and latin america. meantime, the tech giant also announcing it plans to move its stock listing to the nyse from the nasdaq next month. that's a big, big move for one of the top tech companies. $30.50. "squawk box" will be right back. [ male announcer ] with free package pickup

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welcome back to "squawk box" this morning. among investor worries, a credit crunch in china. eunice? >> reporte eunice? we can see you. but we cannot hear you. >> reporter: sorry. there was a big gust of wind. i didn't hear you guys. i think you guys were talking about the credit crunch. yes, pressure has eased somewhat after the credit crunch. money market rates are a bit high. they're coming off a bit. people are still concerned about the credit squeeze. overall, though, the economy still, of course, slowing down.

but when you take a look at the growth rates, people think it's still doing relatively welcome paired to the rest of the world. that's one of the reasons a company like honeywell is investing heavily here. interesting stats for you guys. one out of every two people in china live in a city. the government is trying to lift that to two out of three by 2030. so what that means is that what the government is trying to do is to move the equivalent of the entire population of the united states into the cities by that time. that policy is going to be good for multinational companies. >> reporter: all over the world, people are heading to the cities. nowhere is that more true than in china. by 2030, one in eight people on the planet will live in a chinese city. that's good for companies like honeywell. >> the wealth of these people is increasing at a tremendous speed. >> reporter: honeywell is betting big on china's plans to build up its cities. the american industrial giant has opened new factories like

this one in the midwestern city of chongqing. expecting urbanization expertise in the u.s. and europe to translate here. >> urbanization is really, if you look at it, it's a building of the mega, mega movement. not in one location, but all across china. new towns. new subways. new trains. new planes. new hospitals. and they all fall within the honeywell business scope. >> reporter: if china wuasn't urbanizing at this fast of pace would your growth be as strong? >> of course not. >> reporter: the country's growth rate is currently above 7%. to build its cities, china needs everything from australian iron ore for steel beams to american bulldoze bulldozers. at shopping plazas like this one you can see all sorts of international brands. with more and more chinese moving into the cities, companies like starbucks, h & m

and gucci reach more consumers here than ever before. >> they create jobs for us in china. also create job in u.s. many of the product know how is in foreign countries. in the process of localization, you actually create more job for these foreign countries. whether it's the u.s. or germany or uk. so everybody benefit. >> reporter: welcome news with economies so weak back at home. just like everybody else, honeywell is expecting the economy here to slow down over the next three years. they say the economy is going to grow somewhere between 6% to 7%. it's a conservative number. at the same time, if you look at the forecast for the united states at 2% growth or europe, which they expect to have zero growth over the next couple years, you can understand why urbanization in china is so important to the company's overall business, fwguys. >> okay, eunice, very true. we appreciate it. thanks. we'll see you soon. we need her over there. a lot of this is keying off of

china. "usa today" isn't always right. we're going to go to break. if you're waking up this morning, u.s. equity futures pointing to a bounceback. "usa today" makes a good point. past heightening periods good for the stock market ultimately. it means the economy is doing well. that's why you're tightening in the first place. unfortunately when you think about it, we're not tightening. we're nowhere near tightening yet. all we are is thinking about tapering. >> we're slowing down the rate of acceleration. >> it is a good point. it is a good point that sooner or later this is what -- this is the way it's supposed to work. anyway, bouncing back 112 points. quick break now. a live report from the trading in chicago. we want to see the look on these guys' faces. like, you know, whenever they put pictures of the guys in the new york stock exchange they always look nervous. we'll see how they look when we come back. i'm so into it, tdd# 1-800-345-2550 hours can go by before i realize tdd# 1-800-345-2550 that i haven't even looked away from my screen. tdd# 1-800-345-2550 ♪ tdd# 1-800-345-2550 that kind of focus... tdd# 1-800-345-2550 that's what i have when i trade. tdd# 1-800-345-2550 ♪

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do the math. the global markets recovering some of their losses this morning. joining us from the futures pits in chicago, j.j. chief strategist at td ameritrade. can you tell what you say the 10-year is going to do or volatility is going to do in the 10-year? a lot of people think we're keying on that and 2.5 would be a problem. >> it's interesting, think back about a month ago people were talking about 2.5 being a possibility. the problem is 2.5 came up a bit too quickly. it's not necessarily 2.5 is problematic. if you think about how the 10-year has gone over the last couple of months, it was going in a very orderly fashion for a while. and all the sudden we had this sort of big drop in bonds over the last few days and the rates went up too quickly, so to

speak. going back yesterday and talking about watching all the markets, the one thing that strikes me about yesterday is i think it was just a recalibration for everyone on basically every asset class because pretty much every asset class got sold yesterday. one of the things i hithink tha really weighs in, you're talking about the end of the quarter coming up. you have july fourth holidays. the employment number immediately after that. i think one of the things you're seeing is people saying we've had a nice first half of the year. let's sell some of our holdings and just kind of wait and see where we want to reinvest and kind of digest all the information that's come out over the last -- well, basically this week. >> joe, i'm not a technician. i'm looking at the chart of the vix. all the way back to july of 2011, we got all the way up to 48 on the vix. we're above 20 today after, i guess, a big move -- oh, there it is. you can see that it's been -- we've taken out those april and march. if we go to a longer term one that goes weekly, we're still

below on that -- it's lower lows. and lower highs. and it hasn't been violated yet if we went on a longer term vix story. >> if you looked back at the last time you had something like this it was around all that talk in washington, what they were going to do. >> go back to 2011. there it is. go back further. even this most recent high is still below the high in '13. which is below the high in '12. which is below the high in '11. the lows kept getting lower. if it were to go above a couple highs in '12 and '13 you might think we were back to the races in volatility. >> there is some volatility back in the market. it's just that we're coming off pretty low levels. for people watching today, there are two numbers to kind of keep in mind. on the downside, 1583 even on the s&p 500. because, again, the vix gets its value from the spx.

1583 on the downside. 1614 on the upside. if we violate the 1583, joe, i think you could see the volatility levels back near where you're talking about -- >> intraday? even if it just traded there? >> no. i wouldn't say it just traded there. thank you for that clarification. >> got to close there? >> we got to close below 1583 and close convincingly. 1582.98. >> at this point we'd have to give back all the early morning gains we have now, too, go down another five and close there. that thing we were worried about. >> one of the interesting things, particularly for retailer viewers to keep in mind this morning, joe, today it is quadruple expiration day. the spx, s&p 500, gets its value on the opening print of every single stock. you'll often see on days like this they call it a mark up. many of the stocks print higher on the opening. you have to be very careful in the first 15 minutes today when the stocks open of what's going to be the real trade throughout the day compared to some of the programs unwinding on the

opening. i would caution people on the first 15 minutes this morning. we're going to have to see what the mind set is. is the mind set let's start selling rallies? as it's been, let's buy dips. >> if there's opening trades at the highs of the day i would be afraid of monday, probably. >> is he suggesting the opening is going to be ugly? or suggesting the opening is going to be good? >> going to be the best prints of the day, yeah. >> i'm suggesting they're probably be good. >> then get sold. >> yeah. you have to be very careful. >> then if we get into the weekend, then monday is ugly. >> all that would mean was that we'd need five to ten -- we can put in the sandbags at five now. still hold it back. if it goes today and then monday between five and ten. i don't know which is better long term. anyway, owjoe, thank thanks. >> good to see you. >> it's easier than if you say joe. then i answer. >> it wasn't talking to you.

yeah. when we come back this morning, we will have everything from the futures pits in chicago to the global markets. michelle caruso-cabrera joins us with a look at the international stories that are sparking trading overseas. stay tuned on a very interesting morning. "squawk box" will be right back. ♪ ♪ ♪

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. >> welcome back to "squawk box." the u.s. central bank wasn't the only reason for the sell-off t. chinese bank has been scaring the bejesus on creditors, too, what american banks are telling their clients about the crunch. we have chief international

correspondent michelle caruso could be rer ra right here. >> in the studio. we know shibor. you see how dramatically it has risen recently. it has come back off the highs. when we saw this during our fun financial crisis. this is when banks lend to each other. these rates rose dramatically during our financial crisis, banks were lending other banks. they did not trust each other. we have seen similar things happening within the chinese banking system as well. we have another shibor. you can see one week. you can see it's rising. people started getting nervous. is there a financial crisis coming in china as well? >> this is actually being engineered by the chinese central bank. they are purposely withdrawing liquidity from the system. their repo rate, you understand what that means, know when it

goes very high, it means the central bank is pulling money out of the system. they let it go to 25% intraday yesterday. >> one question, you have to understand, first of all, i have been told, it is a thoroughly manipulated rate. i am told the chinese system is propped up by the government. >> it is, it's irrelevant. >> that's what i would think. >> so let me address the first question. is it possible that the same problems exist with shir as with libor? absolutely. it's in the same context. the fact that it's higher is telling you something. the second question we'll get to right now. so, here, when we had our financial crisis. this was about lack of trust, right, this? china is being purposely engineered because the chinese central bank is tired of what's happening in the banking system. interest rates are fixed.

you can't get enough to outpace inflation. are you losing. small businesses can't get credit when they node it. you have all this money fun emed in and you loint out at a higher rate. there is a lot of arbitrage going on, pawn shops, poenz scheme upon /* ponzi schemes. they want to shake it out. >> how do they do that by raiseing? >> if are you one of these banks, they do something, you borrow from a big bank, now you are lending it out. >> you are a loanshark, essentially. >> long, but remember, the whole issue of lending long, borrowing short. >> are you squeezed in the process. >> exactly. so this is they are purposely trying to do this to get rid of these people. don fronheim says, the pboc inaction like a shot across the

bow of the banks saying be more responsible in your lending behavior. be more responsible in your lending behavior. and he think sths will not get out of the reach and control of the pboc. they are saying we do not think china will see a financial crisis, nomura statement, it is controlled by the government, which has the resources to bail out the banks, if necessary. in fact the chinese central bank has bailed out the banks several times in the last 30 years. goldman declines saying, is this getting out of control? so far, no. they don't think so. >> of course not. >> donald strazheim. i call him don. >> on your board it said dan. >> dan? >> he's been at merrill lynch for years and years. i looked up to see if it was his brother. he's famous. >> thank you for pointing that out. >> we are first at the top of

the hour. take a look at the u.s. equity futures. they are rebounding, a moderate rebound. up 110 points for the dow after being down 550 over the last two trading sessions. edible rush of the mercedes-benz you've always wanted. ♪ .

. >> stocks and other markets take a beating. the dow and s&p 500 wiping out all tear gains for may and june. so is this another buying opportunity? we will find out if there is room to run or whether the market slide will continue. the state of the business traveler. who members of our global cfo are here to give us the guidelines and logic. >> and the latest quarterly results and outlook for the business as the second hour of

"squawk box" begins right now. ♪ . >> good morning, everybody. welcome to "squawk box" on cnbc. i'm becky quick along with joe kernen and after two steep days of decline the futures are indicated higher right now it looks like the dow would open 112 points the s&p close to 15 points above fair value. this comes, tow, after steep losses. just over the last two day, wednesday and thursday the dow has lost a collective 560 points. yesterday, sharp nose dive was something we had been watching very closely. we have live reports from singapore and london, in just a minute, how markets are reacting there. oracle posting earnings after the bell of 87 cents per share. however, revenue came in a little bit light t. company missed expectation for software sales and subscriptions for the

second quarter. it is raising dividends and announcing it will be moving from the nasdaq to the new york stock exchange, still with all of that, it did look like a negative day, down by 8% in the post-market. oracle says it will still trade under the same ticker of orcl despite that move to the nyse. the stock down sharply in after-hours trading and likely will be a part of today's session. tokyo ruled samsung infringed on apple, in particular. the display in e-mails on documents and phones on tablet computers. if april, they rejected the pat tent claims on that fee cure. sprint has raised its offer to acquire full control of clear wire at $5 a share. it tops a rival bit from sprint network. in an sec filing sprint officially jumped out of that. let's focus overseas.

ross westgate is in london. we begin in asia with sri zachariah. >> hi, andrew. that was volatile day this friday rouvengd off a rough week. 9.5 lows. we did see stabilization. the recovery led by japan. the nikkei gained 1.7% at the settlement. so that represents the first weekly gain in almost five weeks. the weakened yen helping t. balance not only having to contend with the head winds coming from wall street and the legacy of the fomc meeting, but also some pretty negative rejuvenal dynamics as well. ka is in point, a stress we have been seeing into the market. today what we learned was that the central bank reportedly enjeked some 50 billion uan into

the financial system. the shanghai dropped almost 1%. watch china. this is going to be a big one. growth concerns there, the second largest economy front and center. hsbc cutting tear forecast to 7.4% from 8.2% prior and also downgrading coin equitys to neutral. so some stabilization at the close. some bargain hunting coming in towards the set himments in some of these markets, but our equity markets on the whole are looking very vulnerable as we head into the new week. so watch china. on that note, we will hand it over to another english accent, my good wait, roz westgate in london. how are you doing in. >> sri, thank you. pulling a late one in singapore. better to be out of the smock, of course. 6-3, 2-1, we're not quite at the session highs we were an hour or

so ago ahead of the u.s. open. the big falls across the u.s. yesterday, 3% plus. having the biggest one they bought since september 2011. it is now 10% off the highs that are hit in may. so it has been more substantial than that. nevertheless, it's up .9 of 1%. we are up one and a third in session. the kak up three-quarters. it's up a little less than that. take a look at the sector breakdown. it is still the defensive end that is high, health care telecom's food and beverage is weak. its technology is down. oracle helping out the loix of s&p, there are weak sales in emerging markets, it may be bad for the entire sector. bake resources hasn't recovered from the sale we seen on that weak china da that. a recap with where we are with yields. yields hire today, highest we seen since march last year.

spanish yields off that rising 4.85%. the yoelds are going up. everything else will go with it. that's where we stand. joe, back to you. >> all right, ross, let's get right to the market meltdown i guess we're calling it. where we go from here. with us is doug deshield, ceo and chief investment officer of first principle's manage. larry canter, he has a cnbc exclusive on barclays open outlook report. we will get to that in a moment. first, let's get you --. >> one, two, three. okay. then four, let's get your take, can you hear me now, larry? you good? >> yeah, i can. >> okay. good. so what do you make of yesterday and we're down 5%. i guess, you're not in the business of calling things exactly whether it could be 5, whether it could be 5 to 10 or 0 to 5 but long term, do you think when you sea weakness you should

be using some of your drive power to make more equity investments? . >> not yet. i mean, i think is a real change in the investment environment. qe is supposed to drive up asset prices. that's how it's supposed to work. they've done that. i mean, stockmarkets more than doubled. we saw mortgage rates close to 3%, even real estate price are going up double digit. i think, you know, we were getting into territory. i think, joe, you had mentioned this, you looked at the last two recessions. there were asset booms and busts. we were headed in that direction. enough is enough. it's a healthy correction. it's taken some of the froth out of the markets. i think the equity marks till is vulnerable here. go imp the performance of the u.s. equity markets, we are up double digits. less than 5% is not that much. i think the fed's gotten very enamered of the economy here. maybe the markets gotten a little ahead of itself for that sense.

for the first time in a year, we're not all that bullish on equity markets at the moment. i'd probably dick take a little off right now, maybe look at fixed income that have gotten beaten up here. >> so you think we're at 5. you think maybe we could go to 10, perhaps, but would you say we won't go into a full bear cycle, a cyclical bear down when the in the you think between 5 and 20, there would be some point there where you'd say go all in? >> i think it's less. i don't think we're going to sustain a double digit declone here. i do think it's going to go a little further. so i'd say 5 to 10 is more like it. that's because i think the next couple months will be a little weak and maybe the fixed income rallies inequities keep falling off. longer term, if you don't get better growth next 84 in the u.s., you will never get it. everything is aligned in that way. we have a lot of fiscal tightening. this over, we have almost none

next 84. it's almost 2 points this year. housing will still be going up a lot. you got housing wealth along with equities. interest rates are still going to be zero. so you should see better growth. the equity markets should do better. the difference the time, before we had the equity mark doing well with bonds hardly selling off, now, if growth comes through and the equities gup, bonds will sell off more. median term, i think the stockmarket will do fine. i think this is just the begin income terms of higher bond yoelds. >> larry, are you suggesting not to take advantage of this downturn, are you suggesting to actually take money and put it on the sideline an wait for it to go lower, right? >> yeah, basically two things here, one is a tactical short term. i think the fiscal tightening is weighing on the u.s. economy. i think we've only got like a 1.5% in the second quarter. 2% growth in the third. the fed seems to have a 3% forecast in the sending after the year, so i think the data

will continue to be weakish over the next couple of months. in a short term basics equities probably have a little more to go. as i was saying before, 5 to 10 at the end here. we're almost 5 now, maybe bonds do a little better. beyond beyond that, we still like equities a lot better than bonds. we think this bond sell-off is just the beginning. >> doug is making faces. >> the reality is you got to have incredible versatility. first of all the fed is trying to give you the transparency. they're telling you they're trying to teledpraf what they're doing. the reality is what they're telegraphing is telling you, we will do this if the economy does that. it's uncertain. what does that mean? their action linked to highly uncertain variables. high policy -- >> it's every economic number. >> therefore, they will give you transparency that we'll do this, so that actually heightens the

volatility around economic data. everybody is trying to figure out, the fed told us they will do this if that happens. we don't know what will happen. in an economic transition, maybe we're going to improve, maybe we're going to weaken creates incredible volatility t. other thing is qe by itself will increase volatility. take an extreme case. let's say the fed owned every bond in the world, generally bonds are owned by lower risk investors. now what's happened is you've sucked out all the low risk assets by low risk investors and forced them into higher risk assets. in order to dampen high risk assets, you only have two thing you can, do either you boy or you replicate selling when stocks go down and buying more when stocks go up. like the old portfolio insurance in the ''80s, we saw incredible volatility associated with people trying to replicate puts when they wanted to reduce risks

of high put assets. now low rick investors are anything higher rick assets. they try to do i namically manage the risk by selling when they see steep declines, buying when they see steep increases. that's exactly how you see the market trade. >> larry. >> let's simplify this. before stocks were going up. you didn't need much in the way of growth. bond is in there. doug is right, growth is back is an important factor t. fed will be dictated bety economy. if growth does better, the stockmarket will do better, bonds will go down. i think watching the economy has become a lot more important again, you will need better than mediocre growth to get the stockmarket up from here. >> guys, if watching the numbers is the most important thing, which are the numbers that will set the tone? what do we have coming up in the next two weeks? >> they told you their conditioning, their theory on policy on unemployment. >> unemployment.

>> right. there is a lot of things that will drive unemployment. can you have people lead the labor force. is that going to make them satisfied with labor force participation decreasing? >> i thought they wanted to see it decrease. >> beyond the 6.5% number. >> right. okay. so then you will see that. now you will be looking at two things, the unemployment rate and the labor force participation go down. you won't see the economy improve. >> larry, is there something you want to tell us that you haven't told anyone else quickly? >> i don't know about. that i mean, i think it's a whole panoply of numbers. you might networks the unemployment rate has been going down. it is because of low labor force participation. so it is going to be interesting to see. the unemployment rate will keep going down. i don't think labor force participation will improve.

>> larry has a cnbc exclusive on barclays global outlook report. did you already give us that? >> we checked. look, you know, i have been on your show a bunch of times. this has been as good an investment environment over the last year as you will ever get. we had all these big tail risks go down, china, hard landing, euro brick. u.s. double dip, fiscal crisis. then we had qe 3. it was a one way better. as i say, you will need better growth for stocks to go up. means bonds go down. it's not a rising tide all boats anymore. that's the difference. it will be tougher from here. it's been easy to make money. so far, that's not going to be the case going forward. >> i don't know. i thought you had a cnbc exclusive on barclays outlook report. >> he did say this is the first time in a year, he is changing. >> for the first time. >> all right. larry, thank you.

from london, doug will be with us for the rest of the program. >> if you have any comments or questions about anything you've seen here on "squawk" this morning or anything we have coming up, e-mail us at squawk@cnbc.com, follow us on 26th. up next, we will try to talk darden, talk to darden restaurant ceo france otis in opening up a chain of restaurants to sell tapper. just kidding. we will talk earnings right after t. as we head to the break, a look at futures this morning. "squawk box" will be right back. ] we've been conditioned to accept less and less in the name of style and sophistication. but to us, less isn't more. more is more. abundant space, available leading-edge technology, impeccable design, and more than you've come to expect from a luxury vehicle. the lexus es350 and epa-estimated 40 mpg es hybrid.

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. >> darden restaurants reporting x items a penny below estimatesled 69. darden raised its quarterly dividend, joining us is clarence otis. clarence, thanks for coming on this morning. >> good morning, how are you, becky? >> i'm good, thank you the stock was under pressure, probably because of the broader markets and things happening here. when you take a look at what's happening in the stockmarket, do you change things? do you sit up and take notice when the dow drops 52 points over the days? >> we don't t. dow has been volatile. it's been strong some time now a. correction is expected. what we do is try to look at the

broader economy. what we see unfortunately as we look forward to next year the next 12 months, we have to plan around the economy, it looks a lot like the last 12 months, so 2% gdp growth or so. >> that's not what the feds have been telling us. ben bernanke thinks the economy will be improving in the second half of this year, definitely next year. what do you think he sees that you don't? >> well, he has a lot more data than we do. we tend to look back. really for each of the last four years and we have planned into that optimism in a couple of those years, that's not proven to be the right thing to do. so we feel look we have to really assume that conditions are going to stay the same and hope the instead right. >> that's interesting. what you are doing is planning

based on what you have seen the last several years. there could be a nice surprise to the upside. is this a case of being burned several years running? >> i think it's that. it's also that we do really have consumers that continue to be under pressure. so i'm not so sure the broader consumer mark will see a big difference between 2% gdp growth and 2.5, 2.6% gdp growth. directionally, we think you strategies make sense. >> what do you see? are they willing to pay for a drink or two, pay for desserts, things they stopped doing during the steepest parts of the downturn? >> i think what we see is it's more important than ever really to think about consumers as different segments. different did he go e segments or consumers are behaving differently. we see a number of consumers who are stretched financially. they need affordably of motions, they need affordability of core menu. they are managing check very closely. there are others that are not.

they are back to what we would consider normalize spending behavior. so what we try to do is be very dynamic and address all of those consumers him all are inside our three market mass market brands. >> that would be red lobster, olive garden and longhorn? >> that's right. >> you have seasons 52, i tried one recently in pennsylvania. that's a more upstale line and i wonder if that's what you are talking about the dips you see if different consumers. >> well, there are different consumers, different sets of consumers inside red lobster, olive garden, longhorn, that's what makes manages those brands so challenging. then there is another group of consumers inside our seasons 52 and capital grill and eddie b's, which are higher end. those consumers are in a different place. so we don't see the same level of o'ford ante. from there, it's make, sure we

are on trend when it comes to various elements. >> that's important in the other brands as well. it's even more important when we get into those. >> when you talk about red lob ter, olive garden and longhorn, what is happening in terms of prices and promotions to get people into the stores? >> yeah, commodity prices overall have been pretty well contained. beef is the one exception and then there are spikes sometimes around seafood when there might be production issues in some of the farm spooerps species so in general, commodity prices are helping but as we focus on affordably, we recognize there will be some downward pressures on margins. we are prepared to accept that, we do think the most important thing is traffic growth. that's why we were encouraged by the results this quarter because we had traffic growth this quarter really for the first time this fiscal 84. that's been our goal.

that's the aim of our near term strategies anding the techs. >> -- and tactics. >> is there pork on the menu? even though we can't buy stuff over there? >> we don't have a lot of pork. olive garden has maybe one pork dish, red lobster one. i think longhorn may have one as well. china is the biggest consumer of pork in the world. my understanding on the last information i had, it goes back a few years, when i was the leader of our smokey bones chain is they consume over half the pork that's produced in the world. >> they must make a cobb salad. we need our bacon. you don't have an opinion? should with -- if we can't buy stuff from them should we -- we can't boy a pork producer, we wouldn't want to. we can't buy 100% of a company

over there. is there any opinion on that? >> i think it's okay, joe. what we found is the commodity markets are global marks within it comes to production and supplies a. lot of things that all of us eat a raised in other countries. >> yeah. all right. >> i mean the markets over the past few weeks in the near term have been dramatically reducing inflation expectations. i mean, in the two-year expectation of inflation is under 1% for the next two years. are you in business actually expecting to see that type of low level of inflation in the business that you are operating? or do you think the market is completely underestimating the potential for inflation in the near term. that's what the markets are now pricing. but the question is, what you see in your business, are you seeing real inflation of any type other than commodities, labor and input? >> yeah. we're seeing pretty low levels of inflation. so i would say 2% inflation is what we're seeing when you

bundle utilities, labor, food costs together. that's up slightly sometimes. sorry. >> that is something to ask you about. in health care, there was a poll the other day i saw in black and white said stuff about, you know, that companies like yours that have a lot of temporary workers that did obamacare will hurt power. are you seeing anything yet? will it change at the turn of the year? >> there are a lot of unknown, joe. so we don't know. what we have been doing is working with the implementing agencies, to make sure that the rules make sense. we had good reception and so we think that the rules are getting clearer and clearer. in terms of how consumers behave when they're offered options they haven't had in the past. we don't know. that we also don't know what's going to happen to premiums. there are plenty of reasons why premium growth might actually

abate, but there are plenty of reasons why it might not. so it's very difficult to make a call at this point. i think the best thing all of us can do is to wait and see. >> all right. charps, we want to thank you very much for joining us today. it's always great to talk to you. we hope to see you again soon. >> thank you. >> yesterday, it was about how many people, 18 to 35 absolutely have to sign up and if they don't, it's not a worry, it's gotten more, they're really sweating it out. and there will be a series of times where they sell it to make sure they get the 18 and if they don't have enough, it collapses. >> i'm surprised, though, that clarence doesn't know. i would think most companies at this point -- >> we had a poll. >> anyway, coming up, we have a lot more coming up. airline and home businesses from the cfos from you 23450i9d continental and check out the price of gold this morning. we are at 1,291.9.

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>> well welcome back. everybody. russia's state oil company rosneft says the deal is worth about $270 billion. adm is talking about expanding the foot print of its global grain sector. in walk, the house voted down the farm bill for the first time in at least 40 years. republican budget cutters defend

food stamps to defeat the $500 billion legislation. we have been watching the markets closely after two steep days of declines. a gain of almost triple digits for the dow t. dow jones looks leak it will open up 99 points right now. the s&p futures would open up just over 12. it's been interesting, not watching the equity markets. watching the other markets, too. oil prices at least this morning are looking up about 38 cents. let's look at the 10 year t. bonds are what everyone is watching. doug, we were talking about the off camera. what would you be telling people to do off camera? >> i wrote to you about this a year ago. an analyst told me the way to look about bonds, bonds are not marriage material, but it can be a fun date. >> they were up all morning, doug, now they're down. >> is that the yield? >> actually bonds have rallied today. they're up about -- you know, bonds are up, prices are up

today. that's the yield is down. the yield is going down. the price has gone up. >> the yield was at a 2.41. >> let me see that 24, too. it was at 2.42. >> it's a price not a yield. >> it's up today. >> .007. >> it had been up all morning long the price. the yield had been down the yield is up. that's in contrast of what you said the yield is up. >> look at the moon. >> the yield is down. >> the yield is 100% down. right there, it was 2.41. it was 2.39 earlier. >> it might be. >> yesterday, but just now. >> compared to yesterday. >> look at the chart. >> let's look at it a. change of .oo 7. >> it's down. >> it's a red arrow down. >> right. down. >> it's expressing the yoeld, not the price then. >> right. >> 2.41 is the highest we've seen this morning. >> right, yes. >> doug, your point is --. >> loose, people have been bike

bonds, because they thought the fed was buying bonds, which means it will be fun to date them. you don't like the yield, you don't want to hold them to mature. you don'ty you are getting an appropriate risk to reward. would you like to own a bond and earn a 2.4% yield and hold that for ten years or a 3.5% yield? right, everybody has been buying bonds, because they thought the prices would go up and they'd be smart enough to go up before everybody else got up. the people in bonds away from the fed who tells you that they're the ones going to hold them to maturity. everyone else shouldn't, then you are going to see these types of moves. it should be no surprise. when i analyze bonds, i look at them from the perspective of would i like the number also? would i like bonds, the bonds start to become fairer in the long end. for the first time, you are seeing actual reasonable real yields on inflation protected securities t. 30 year real deals on inflation protected securities is now 1.2 to 1.3%.

what does that mean? that means you will earn inflation plus 1.23%. you can actually earn a reasonable yield in excess of inflation by owning a long-term bond. it's been zero. it's been negative. no one would want to own those bonds at negative rates of return over inflation. >> negative. >> for the first time, you are seeing actual long-term real growth, i think are fair. i think the real yield roughly based upon the demographics of this country, i believe the real yaeld is fair between 1.5% and 2%. which means that bonds, long bonds, should be trading at whatever your view is on long-term inflation plus that 1.5 to 2%. >> we think it's fair, now for the first time, that's fair. if you look at the other extreme, for the --. >> you think that should get better actually over time? based on what's going on? >> right.

i actually have a view that inflation is going to be rale relatively low. i think inflation of 2% is what we think. if the real yield is 1%, you expect to see the long bond at 3.5%. this tapering, in 19 know, we saw extreme bond moves. in 1994 when the fed started changing policy and going to tightening the two-year notes sold off roughly 150 basis point sell-off in the two-year note in the ferc of '94. well the two year note the nominal note can't sell off t. feds told you, we will keep interest rates at zero the next two, three years t. two-year inflation-protected security, which is not managed by the federal reserve actually sold off 120 basis points over the past. >> so you are saying markets if they're not managed by the feds like this, that's the distortion of the market? >> you are beginning to see things move kin with the a complete removal of bad accommodation. that's what you are starting to see in the bond market. >> doug's our guest host.

he will be with us the rest of the program. >> .42. i just watched, since we talked about it. it took that long, greenspan, we used to have it running much more frequently. >> right now is a moment to be watching the bond market. >> we need to put the ten year back up more frequently on the top. who does that? >> maybe on the buck on the bottom. >> i bet you by the end of the day. >> the yield is up. >> you need to put the market to market of the federal reserve's bond portfolio as a ticker on there. see how that's moving. look at the mark to mark the change in value of their portfolio on a daily basis plus or minus 20 or $30 billion a day. >> there it is. >> real terms. up next, two cfos in the business of travel and lodging. we have one that will get you there. the other that will pamper you wince are you there. we will talk the economy and more with hilton world wide cfo tom kennedy and united continental holding cfo john rainey when we return.

. >> the game of futures right now, it had been up like 110. now we're coming down. >> i watch this show, i get

nervous. >> they're watching. >> 10 year. >> or mr. barclays perform, what was telling you. >> to sell. he said it won't be double digits the decline. so we're in five already. that's a pretty weird call to make if you try to call it that closely between five an ten as far as the sell-off. where is the ten year now? is it now down on the day? it's up a little bit. >> okay. we have two cfos here we have to talk about. it is the first day of summer. you look ahead, will this year's as i remember more tend well for the -- portend well for us. cfo tom kennedy and john rainey, ceo of united airline. we will talk about travel and the economy if you will. i want to talk about the markets and what ben bernanke said and how you think that will impact

your real business as opposed to everything else. when you watch what he has said, how have you recalibrated if you recal blated anything at all? -- recalibrated anything at all? >> in the summer, we are going through our peak period of travel. generally, what we're seeing is bookings are holding up very well, but the consumer seems to be very price conscious. >> is bernanke right, he is ahead of himself, behind, in terms of where the economy is going? >> you know, it's your opinion, too, tom. from my perspective, i think he's done a good job thus far. it's difficult to second guess him when we den tow what would have happened. >> i think the larger picture is the fed's estimates on where gdp going? is that matched the way you see the world? >> i men we see our business up 5 to 7% for the year. summer is consistent for that. we see strong growth.

our business is very diversified across ten brands, across all different customer market secments in 94 countries. in the u.s. and globally, there is all these pockets of challenges for us like in turkey right now. it's a small target of our business. in the u.s., we are seeing very strong demand. >> is that a function of your company or how you see the consumer and the economy at large? >> we see the traveler, transient and business traveler have been very strong, surprisingly strong for us this year. i would say the government business not unsurprising. it has been a little weak, obviously with sequestering, it's been very strong for us. >> what keevend of leverage do you have on prices? we will give you a hard time, prices in the airline business, they seem to go up. i should tell you about the airline prices i have for a couple trips planned this summer. >> i appreciate it. >> what's happening there, the same issue in the hotel space? >> you know, it's very different geographically for us.

we see pockets of strength. samples i point to are the mexican, the caribbean. ha. is strong, you can track that to europe. we had this economic ma lace in -- ma laise for some time, istanbul is obviously not so hot. >> if i want to get a room in istanbul right now, what's the rate? >> right now a little unrest in turkey. >> both of us have plans and trips to istanbul. >> i don't need a room there. >> you don't need a room there? >> stay with rich epgle. >> he has a place in the most professional part. i would call him. >> sleep on a futon. >> our industry is pretty simple. it goes to supply and demapped. it has been growing at 1.9%. it has been growing at 1%. demand at 2 or 3% means pricing power. so the zre has seen pricing

power. it's been good for us. >> what about among the different brands? your pricing power at luxury brands vs. lower ends brands? there is some view the asset price of depreciation affected the higher end people with lots of assets. the people that need a job aren't the ones struggling. in terms of your ability to price differently and growth opportunities, how does that work? >> as you look at our portfolio, you have different types of customer secments. during the credit crisis, prices fell deeper at the higher end. the focus service didn't fall as much the price points last. so it's more pricing recovery, obviously, at the upper end and less pricing recovery at the focus services business. >> we are speaking prices on the airline tickets, what have they done? >> in real terms for the customer, how much have they gone up?

>> in real terms compared to 2,000, fares have gone down. >> i'm saying in the last 12 to 24 hour months. >> you see some strength. particularly since the consolidation in our business. >> tell us. you are scared to tell us, how much strength? >> the last data point was may. you look at unit metric in may. it was down 7% for the industry. >> i have one last question, 787, there were two united flights diverted recently related to oil. >> separate issues each of them. i'll tell you. >> should we be worried about that in. >> not at all. >> boeing has to deal with it. you have to deal with it? >> this is fairly typical in the new aircraft. the triple 7 is the most reliable aircraft in the air today. boeing would tell you, you have similar growing pains. you saw the 787. we doubled down with an order this week. i'll tell you, our customer satisfaction scores are twice as

high on the 787 as the other fleet. >> twice as high? >> twice as high. >> gentleman, thank you very much. it's been helpful to physical out what is going on. >> one person we definitely want to hear about from what happened recently is david tepper. ask cramer about the guy, probably the best record of anyone. i have heard from him. we have heard from him. the question posed to him today was has anything changed in your outlook when you were out on stocks, a few weeks ago. he wanted they werebling. i said is this the tapering you were looking for, is it necessary, or is it something different? i'd be i think surprised at what his answer is when we come back. it's important to get away from everything once in awhile.

well, everything but palm trees, sunshine and fruity drinks, that is.

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. >> okay. the first thing we should do is we are making this in video form so that everybody can follow along as i read it. why don't we look at the futures, bring up the futures board to see what happened. >> here's the futures board. >> may 14th, i think. >> so let's look at a stock maybe a two-month. >> it's unchanged.

>> about 14.9 when he was onch up 95 right now. here's what he says, david tepper. all the concern in the markets now is what the feds said about the economy. the economy is seen stronger in the future by the fed. in fact, their forecast now shows that they will wait for a lower inemployment rate, closer to 6 than 6.5% to raise rates. so that's a bit easier on that front t. bond market, because of what's happening, is, therefore, concerned about the economy the fed sees. a 10-ier bonn or 3 because of the strength is ultimately healthy. he actually thought they should start to taper now. so what they did was even less than what he thought. bottom line when the dust settles, the only place to be is stocks. if you care what david tepper says. is unefive cal, the reason the bond market is selling off is

the fed said positive things about the economy and eventually that's going to be a passive, which is, we all sort of. there check out the futures board right now. >> right. we thought this already. i think we keen of thought that. we don't have the money. you know, we might think it. but we need someone. >> eventually yields on bonn will start. >> right. at 0 on bonn, they make no sense, right? it makes no sense to own the bonds. but at 3 or 4%, then bonds compete for stocks again. at some point they will become more attractive. >> right now i agree with him. >> even if it got to 3. you know what, it's a huge market. it's hard to move from one-sixth to three without backing and filling, isn't it? the money doesn't move like that. >> you remember, the size of the market, it's in the hands of people trading is getting smaller and smaller. you are exacerbating the move. have you 25% of the entire body

eventually comes home. it makes it hard to, i always thought when you see a stock move a lot on any given day, there might be a billion shares outstanding, a million shares trade, it's up $20. if you had to monetize all billion shares up 20, that money is not there. it's just, okay. >> but that's ron bear and david tepper. they weighed in. these are heavywaits weighing in. >> they have a short pochlths send us an e-mail. >> the bottom line on tepper, i want to mention again, all the concern because the fed basically weighed in and felt a little better about the economic prospects. accounts for why interest rates have move hire. but if you read between the lines in what the fed says in terms of raising actual rates, they said it had to be close to 6% on unemployment to 6.5%. that's easier. on top of that, the povend market, eventually, if it's weak, eventually that would

portend healthy. when the dust settles, the only place to be the stocks according to david tepper. coming up, we will break down david tepper's comments. futures moving on what he just told us. we got more on that. in a bit, take a look at the ten-year. the dow is up to 2.4%. we may have a surprise guest in the 8:00 hour as well to talk about all this. "squawk box" is coming right back. [ kitt ] you know what's impressive?

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. >> all right. take a look. the dow futures look like they will open close to 100 points. it's all coming after serious days of losses over the last two sessions. we are now down about 5% for the markets. it makes people start to wonder if they should jump in or not. david tepper. he says the bottom lean when the dust settles, the place to be is stocks. dennis starkman will be joining us. doug deshields is our guest host. we will talk more about the bond market with him. "squawk box" will be right back. [ male announcer ] at optionsxpress, our clients really appreciate our powerful, easy-to-use platform. no, thank you. we know you're always looking for the best fill price. and walk limit automatically tries to find it for you. just set your start and end price. and let it do its thing. wow, more fan mail.

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. >> investors on edge, stocks trying to bounce back from their worst session of the year. commodities crunched. gold losing its shine as prices dropped to the lowest level in years. and what about rates? investors paying close attention to the treasury mark this morning as the final hour of "squawk box" begins right now! ♪

. >> welcome back to "squawk box" here on cnbc. for business world wide, i'm gentleman kernen an beck qui quick. our guest host is doug deshield, ceo, chief investment officer of capital management. hopefully, we're going to add the ten year for you are to watch. that was alan greenspan request from us. it dated between 1.8. two years it stayed there now do we not need to see it? >> no more consequential number out there. >> let's take a look at u.s. equities futures at this hour. it's been a bounce back. remember the number 560 is what we lost the previous two sessions. >> 560 dow points and now we're looking at least at 90 up 100 or so.

you might recall david tepper of appaloosa. a great record over the last 20 years, he joined us on squawk last month to sort of update us on what he said years ago before the market moved this much this is what he said to us that day. >> if there is a true taper, there better be a true taper or else you are in the last top of '99. so guys that are short, they better have a shovel to get themselves out of the grave. >> in the last couple sessions, people have tweeted us. who are reshoveling with that shovel? it was about 15 tough. when he said that, it ran up to about 15.5. now we're below that and he is you might wonder what he is saying today. he is corresponding, sharing his opinions on the fed action and what happened with the smashing, what happened with the ten year, here's what he said this morning. all the concern in the market is because the fed sees the economy

actually stronger in the future. i'm glad liesman is here for this. whether they taper or not, they won't tell you when they're going to do it. people were watching closely to see what they said about the underlying economy, right, to see if nay upgraded their opinion on that. would you say it's fair to say, steve, they moved their bar down from 6.5 to 6 when they raised rates? >> i have been trying to sigh that a while t. fed has been --. >> listening? >> you said it like him this. >> let me fie finish. the bond market is concerned about the economy. not the fed is losing control but the bonds are going down and up because of strength and at a ten year 2.4 or 3 because of constraints, that's healthy in the long run. i obviously thought he would have liked them to start tapering immediately. the bottom line is when the dust

settles, the only place to be is stocks. we are down 2% yesterday. all 30 down. if you disagree with term, i need to see your 20-year performance in managing money. >> it is ev dent by the fact that i'm still sitting here. >> like 20 year, i wouldn't be here that's what's clear. i would like for what david said to be true. >> yep. >> i'm not sure it is. exactly. why did the bond yields rise so much and it could be because there is better economic strength expected. but how would you know that that's different, joe, from the idea that the fed is expected now to boy less? >> all right. so there's those two things. now, what to square what david is saying.

maybe he's saying they're going to by less because they expect the economy to be stronger, except they downdpraded the gdp. i want to share with you. have you seen this yet? he's been out with dissent. guys, if you can scroll up so i can read these headlines here, he is saying the fed failed to really follow its inflation forecast. it strongly signaled the inflation target. inflation is surprised to the downside to maintain credibility, i like the fact the deshields is agreeing out of the corner of my eye. >> he makes a lot of move. >> perfect. lots going on. >> he travels a lot. >> he is saying one of two guys dissented. the fed must defend the target above or below. it was inappropriately tied. i talked to other guys who said why would the fed say this when it had what it wanted in terms of market expectation.

then i talked to drew matis this morning. he said what the fed did is tell the mark it's on auto pilot. that it kind of got away from. >> data dependent? >> calendar, data dependent. you know what, we will do this anyway. >> this is leading. >> isn't that scary? >> hold on. >> no, because the yellens thought more dovish. >> can i take on this idea of auto pilot? >> right. >> i don't think it suggests they were. he said over and over again, if then when? it's all about the data. >> can i scroll ahead one more time? >> you want to come back. . >> okay. . >> if you look at the inflation the treasury inflation protected securities marketment after that statement and for the past three months, what the belief is, is that the fed will not by a come dative. what's happening is in the shortened, inflation expectations have been crushed

in the zero to two years. people now believe inflation for the next two years will be under 1% what does that tell you, that the fed will be accommodatef -- accommodative? what is going on? in the shortened, inflation has gotten crushed. in the longer the, there has been modest, not huge. in the long end, there have been increases in big yield the market is saying they don't think the fed rb accommodation. in the long end of the inflation markets, you see real yields going up. in the shortened, the actions in the near term will be reductions in inflation. can't be consistent with the accommodation. >> to summarize, you are saying the market believes they wering 2:31 when the press conference began the fed was going to be tiert that it believed at 2.21. there is a sense accommodation

came out. even while bernanke said i am not going to do anything, even though he said we will maintain qe for a year, he said once i start tapering, that says nothing about when i'm going to be raising interest rates. what doug is saying. there is no reason to think that's untrue is that the in factings saw all of those -- the marks saw all of those statement, somehow, bernanke, by laying out a time line on top of what, by the way, doug, the market already believed. the time line, we were talking about this, is the same one in our fed forecast the day before. so that ends up being more hawkish. >> did gold slow down because they will be less accommodative? >> both. >> i don't know. i can tell you, that was a big move, but two-year inflation going down 100 basis points in

my world thapts an enormous moif move. >> this indicator is like a thermos bottle. it knows whether to keep it hot? >> i'm not saying it knows. no, it's definitely not always right. that's how money is made. money is made by having your expectations deviating from the market's pricing. now, lay your bets, based on what the market is pricing. >> you are saying in the sense of less accommodation, higher yields the mark, though, would be expecting liss growth because of less accommodation. >> right the fed has created real yields at these levels. they have driven it to be negative as part of the qe. once qe stops, nobody wants to own assets with negative real yield. nobody wants. i'm following some of this maybe. but, yeah --. >> they overdo it. it's the right level for the right policy? >> when the dust settles, the

only place is stocks? now i don't know whether i'm coming or going. >> let's put it this way. i still believe that it's difficult to own bonds. therefore. but therefore, then you'd buy. >> you have no choice, you have equity. >> all of that. >> his last statement is correc correct? >> more specifically on bonds. >> why would you want to own something that generates returns lower than inflation with risks. the reality is you can own cash or very long maturity securities, starting to become fair. can you own stocks. everything else in the middle is kind of. >> garbage. >> is there a problem the long hand could get out of hand and the feds, could the yeel cover steepen? >> even more. >> it's a function of how much

it is an issue. >> that would mean we got a good economy situation, right? >> either or we're getting back to reality. we're not seeing whatever was the prices of excessive boying the drove prices to things that didn't make sense. you might be getting to fair. >> let's get to charges campbell. john lynch, regional investment officer at wells fargo bank. like i said, there is an old expression that opinions are leak i changed it to noses, because everyone has one and they all smell and it's not pretty. it can be used. now we will get your opinion, john, charles. you seen what the marks, both bond and stock have done recently. john, what do you make of the last week? >> morning joy. thanks for having me. we are seeing a recalibration by investors of their expectations of the three speed global economy for the major economy in

the world. china at the upper end, the u.s. in the middle. raised without growth rates and europe where it's still unsense, probably the expectation is a little low going forward. critically here, is the role the central banks will play in each of these markets and economies. in the occupation, we are really trying to evaluate, it's a price discovery, if you will. what itself the appropriate market clearing interest rate level given a less active federal reserve? so, you know, to eme, i think the fed remains data dependent. i think they are symmetrical in that they could provide greater accommodation if data dictate such. they indicated first in the may 1st speech and reiterated in the recent speech in the recent testimony statement and you think if data deterior rates, they will get back involved. the rev. ratsdz are higher is

because the expectation that is economy is gaining traction for food reason. it's not because of everyoneflation. if you lock at the central pendency of the projection by the federal reserve the major change is an inflation expectation, it's going down, not up. i think mr. bullard has merits, they have to remain symmetrical. >> you are making french. how about you? >> good morning, everybody. i think we are debating the financial markets. i think we're seek it across all active classes these last couple of days to the point about the ten-year benchmark. i was relatively encouraged we bounced off 246 two or three times over the past 36 hours. so you got to keep in mind that just because europe is not currently in crisis, does not

mean there is not a crisis in europe and to what degree will the inner bank challenges escalate in china? i think ultimately we will finish up the year 225 on the ten 84, looking at the equity markets, down about 5%. certainly encouraged by futures this morning. >> all right. we will keep it short. we have an important phone call coming in that we're going to get to now, andrew. >> we do have a phone call. in other news, morgan stanley just receiving regulatory approval to require 35% holdings fr from citigroup. in talk it's good to have you talk about this transaction and in part this is about your wealth management clients who are trying to figure out what to do this morning. thank you for joining us. >> good morning. .

>> let's walk through this real quick. you are announcing you are buying the remaining piece for $4.7 million in additional capital, is that right? >> that's right. andrew, this is something that we have been working on since the ashes of the financial crisis in late 2008. so it's just a tremendous thing we have worked so hard to see this through to the finish line. >> this is ultimately the transformation of morgan stanley in the forward or in the future, now we're here? >> well, there is know it's transformitive. we're attaching now one of the loornlest and what we believe to be one of the most powerful wealth mappingers with one of the single best investment banks globally. this digs i combination is both transformitive and at the same time brings tremendous stability to our institution. >> in the short term, what is

the capital going to do to earnings? >> well, the $400 million in capital was approved under the c-cap process, that's rale relatively frankly not the issue. what we do now the pick up 35% of the earnings. the first quarter pretext earnings were 600 million. 12 months, a terrific dividend. >> help us with the big question, no longer morgan smith barney, those clients trying to physical out what to do. what do you make of the markets and what ben bernanke said over the past two days? >> i'm in australia. so i didn't hear it live at the time. but obviously, they watched everything going on. it's not terribly surprising. there was always an issue of when qe would slow down and ultimately desell rate and reduce back to a more normalized

environment and the impact of when that happened and the signaling from the fed was clearly going to cause market disruption. i wasn't surprised by it. bernanke has been doing a tremendous job and we see economic recovery back to a more normalized environment. the market would be skittish, it's not surprising to me. >> we got a comment from the david tepper who said you have to be in stocks, are you telling them to jump back in, take advantage of the downward pressure? >> the s&p multiple in 2000-2001 was 25 times earnings. in 2007, it was around 16 times. i believe it's around a little higher than 1,500 now. it's around 12.30. the markets are not as cheap as two years ago. i definitely think long term you

should have a balanced portfolio. this is not a time when fear should take over. this is the last of a series of hurdles back to a more normal environment. >> you have been talking about a balanced environment, whether that makes sense. does bernanke's comments thang that for you at all? >> first of all, you have to take into account whose. you are talking about. we got clients from several hundred up to several hundred million. depending what the rick profile is and the other investment decision that they've made out, clearly, you adjust the portfolio based upon that, typically, overtime, obviously, you need a balance between your equity and stock and i watched this and the marks are constantly trying to time where everybody should be. i think there is over reyax

right now. i suspect it stablizes. i suspect we see a little more stable in equities. we should get the chairman, the federal reserve his due. i think he is getting us back to a more normalized state. >> i was why you trying to think all of the names that are in those brokers. i can't come up with them. it must be e.f. hutton, a dozen or so. you probably can't remember the history of everyone you have under that banner, do you? >> joechlt i think that's joe on the line, yes, there must be 40 different fimpls, top of mind, kidder, hutton, mason, stevens. >> smith barney. >> dean whittier. >> and smith barney shearson, i was looking at it in the context you are adding to the empire and the kaminsky empire, really, i think, right? >> well, we do have great lineage in cnbc thanks to gary,

which we are very proud of. they're great institutions that have made up this firm. we are in a different structured industry now. >> number two. who is it now? >> depending how you measure, we are one or two globally. >> with bang of america mer rim, right? >> it's a great institution, globally and wells fargo is a large institution also. >> so you got four fimpls now dominating the space. >> james, how much of this is a bet on the stability of this business relative to the intemt investment banking business vs. a bet that they will go up. we are if a long-term bullish cycle. we will need more people need their money managed. >> andrew we had a strategic vision which was there was a lot of connectivity between asset manage want and our securities and product origination.

number one the businesses fit well together. number two, we shared a lot of things that didn't make sense, msci, discovery, proprietary hedge funds, now we are taking not a bet so much on the markets, certainly not the timing, we are taking a long-term multi-decades view that the individual investor will continue to need these kind of full service mpgs brokerage services we provide. this is going to be a very attractive business for us. the other thing i point out. we are now through this joint venture, 100% closed. we will be the tenth largest bank in the country, $135 billion in deposits. is a phenomenal asset on behalf of our clients. >> understandably, this is a long-term bet. have you been surprised by the reluctance to get back into

things despite the climbing smashings in 2008 and 2009? >> becky after all the scar tissue built up in '08 and '09, nothing surprises me t. thing i am most surprised about money hasn't been taken out and it's kept in cash in very liquid pocks as people try to digest is this recovery for real? for my money the u.s. recovery is real. there is a reason the federal reserve is tapering. there is a reason federal rates will rise, we are seeing the largest economy. is good news. that's the fundamental that's good news. >> james, a final question, for most of my career covering wall street, there has been a joking. given the transformation your firm has undergone with the completion of this transaction, does that change? who do you compare yourself to after this? >> well, obviously, our friends

downtown, a terrific institution. we compete with them across the wrath of businesses. we now have built out a wealth management business which makes up almost half of our firm. in no way does that diminish our mna, debt equity the great equities business so we compete with them as we do with many of the other institutional houses across a broad range. we also have the bal balance and stability wealth management brings to us. we like our business model. we try to do what is right for us. >> thank you for calling in this morning both with your news and your perspective on the marks. >> that's within the stock chart. >> he has a great looking stock cart. >> it is time to slip in a brake. we have more on david tepper's markets still ahead. plus, gold is looking for the biggest drop in two years.

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. >> welcome back, everybody, watching the futures at this point at least. dow futures are up. by 70 points. they had been up 115 points

earlier in the session. you can see the s&p futures are up by about 9 points. of course, this comes after two days of big losses, you add up wednesday and thursday's losses for the dow. you are talking a drop of 560 points. we'll see what happens as we get closer to the open. a lot of people have been weighing in. david tepper among them. he emailed us saying the concern in the market is the feds see the economy stronger in the future. their forecast shows they will wait until a lower unemployment rate closer to 6% than 6.5% to raise interest rates. so they are a bit easier on that front t. bond market is concerned of the strength of a ten-year bond or at 3% if it's because of strength is ultimately healthy. if that's a good reason. we have a lot of people that said this. i of course thought they should start to taper. bottom line, one place to be is in stocks. we have had some different people coming around the table. a lot of people saying think

think stocks are a great value and he sees a lot of opportunities. doug deshields is here this morning. he has been talking about the bond market. when you look at the long term, you think it's fair. short of that. >> you are still, look, when you buy, when you make an investment, the purpose is to earn a rate of return in excess of inflation, why sab money? i might as well consume everything. why save to have less ability to consume tomorrow. bonds have a negative basis on return. from the fun dating perspective, you couldn't foe that. as yields went down, your total return was huge. if you looked under the cover, that was all the fact that the feds kept bike, bike, you didn't realize the fundamental also of what you owned wouldn't make the grade to as a prudent savings tool. >> you wouldn't have married? >> the bottom lean is you had to get out. that's what you are starting to

see in bonds. people who didn't want to own them for the long run owned them, once you realize you will not be making good capital gains on them, you get out. that's what's happening in the bond market. in the other markets, what happened is people started to get overallocating into risk assets. maybe they're not comfortable and you start seeing these moves. >> that's doug deshield's opinion. we talked to morgan stanley ceo. you never know who may show up on "squawk box." you can't afford to miss a minute. you next, we will talk commodities. stay tuned. it's lots of things. all waking up. ♪ becoming part of the global phenomenon we call the internet of everything. ♪ trees will talk to networks will talk to scientists about climate change. cars will talk to road sensors will talk to stoplights about traffic efficiency.

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. >> welcome back, everybody, gold is headed for its biggest weekly drop in nearly two years. dennis gart man is the editor and publisher of the gartman news letter. when you see what is happening in gold, what do you do? >> first of all, people in long gold have a difficult problem. the mar jens are in control t. gold bugs are not in control with the removal of the additional revs the federal reserve bank has been pushing in the system for such a long period of time, leakly to come to a grinding halt at the middle of next year. the one great fundamental the bulls might have had is taken away. gold is under pressure, it's likely to remain under pressure. if you deal in gold, you got a problem.

>> dennis with this problem, did you see it coming before the fed chairman spec on wednesday? >> i haven't liked gold in dollar terms, beg, for a long period of time to be quite honest. it's something i prefer not owning. i can't say that monday or tuesday this week before the fomc meeting i would tell people to get the heck out of gold. but i haven't liked it for some period of time. the gold bugs don't like me. they know i have not been enormored of gold, nor have i liked gold for some while. i have count sild people to stay away from it. don't be a buyer of it. you don't want to own it. >> it's watching commodities for years and years, i'm trying to grapple with the ten year. wouldn't it make sense? my scenario would be the ten year, which has moved quite a bit does some type of encouragement on the yield, i don't know if it it would be a 50% replacement. if it did, i think that would cost stocks to get back a lot of what they've lost in the last two days, would that be a

scenario more leakly, if it got up to 260 an got out of hand? i think it would make it tough to rebound? don't they make big moves? >> things, do you talk to somebody remembering the long bond at 14 and a quarter yield. i go book quite a way. for me to think the ten year could get to a 4% yield is really quite simple. i could imagine we would be at a yield with almost no difficulty. >> we go from 1.6. it's .8 of a.. if it were to go back to 2, would that surprise you? >> not at all. you mean in fields were to fall? >> yes. >> that would surprise me. >> phil gross said you could weened up with that at the end of the year. >> i would have my doubts. think the bear market start and

the bond market began almost six months ago. people are starting to realize it now. i think the odds of taking the ten year back under 12% is are very, very small. i thisty odds are greater we will see that. >> your 4% yield obvious the ten year is 6% nominal growth with 2% inflation, right. what is happening to top line coverings in a 6% nominal growth world in a world that top lines are not growing as well? what's the sinner for stocks under that situation vs. the one, joe, i think 2% you might get a bump if stocks. that's not fundamental. >> we would make a stand here. >> give me a 6% growth. >> in all good time. he said two years for 4%. >> i think the smartest thing is all in good time.

we are in the business to foe we want to see things happen between now and next tuesday. >> i'm woishd about the day, a ragged close. >> and a quad dominican republic him witching. we are down five. >> if you have a racked close on friday, you have a tough monday morning. >> then you might be in the full correction mode. >> we are still at 60 points for the dow futures. is half the gain we seen earlier this, mo. great talking to you. >> becky, thank you. >> we have been watching the future itself all morning long. there is the -- the dow has come, we were up nearly 100 points. >> you heard earlier the s&p, that print at the open, i wouldn't want that to be the highest print of the day for the s&p.

don't worry about this we don't want the s&p, the qued truple witching to be the high. >> chicago. we will do that and check in with rick santelli and his friends. we'll do that next. .

. >> welcome back to "squawk box." we are watching the futures. for those that don't know "squawk box" before 9:00 a.m., closely, we have been looking at it. the do you looking like it will open 53 points higher. is down where the show began. s&p 500 up 6 points. the nasdaq up 2 points, giving back all of their gains for may an june. we seen the futures start off strong we also heard from david tepper. here's what he had to say. in fact their forecast is showing a lower rate to raise interest rates arguing that good is actually good. so that would make things a bit easier on that front.

he said he shot they should taper. here's the bottom line, when the dust settles, only one place to be. is stocks. also this morning, morgan stanley echoing a different theme the ceo had this to say. >> markets weren't as cheap as two years ago. i definitely think long term you should have a balanced portfolio. this is not a time when fish should take over. this is the last of hurdles to go through. >>let get to rick santelli and bob iachino. rick, help us, what is the mood on the floor right now? >> i guess the mood on the floor is to try to continue to look at

all the variables traders pay to on a minute to minute, hour to hour, day to day basis. we can talk about how far the home runs go when the players are juiced. you outlaw the juice. you know they won't go as far. it takes a whole other season to see the percentage drops and long balls hit. this is indeed a process and on the fixed income side, it has been very orderly. very orderly, and we talked months ago about the key levels. 223, 239, 268 and i think that we are still hovering despite all of the action in the equities in the last several days, the interest rate market is backed up to what is perceived as value. if you are looking for the big en chi l-- en -- enchilada, i d personally believe that this is the time to push the interest rates higher. >> bob, where are you?

>> that is an amazing analogy the juiced home run versus the non-juiced. we are up 17%. still up 17% on the s&p and adding in the total value closer to 19% or 20%, and i don't believe that people should expect 25% a year out of the markets. when the markets are up, that is not your money, unless you are retiri retiring, because that is earnings. >> if you are down 5%, and going to 10%, and a ragged close on friday and a weekend of -- >> yes, joe. i have been saying since the beginning of the year with you guys that i believe it is high single digits and low double-digits and paints me in the corner to expect the sell-off to be bigger, and it does not bother me, because the equity markets are a diva. they do 6% or 7% a year and retrace and then if you are buying hold, expect it. it is part of the game. this is what the equity markets do juiced or unjuiced. >> and therefore take advantage

of the opportunity or stand on the sidelines and watch it fall? >> well, a lot of guys have been flacked for the expecting a correction and expecting the correction and then up the next day. trade tiing in investments is n about the return, but the risk that you take. so people should have been taking money off of the table waiting for this, and waiting for the basing and then, yes, take advantage of the opportunity. >> i wish that everybody was that smart. steve? >> i don't think that i have a euro chart there. it looks like the euro kind of fell out of bed here. rick, are you watching what is happening down there? >> yes. >> and at 8:00 -- >> jerry, and nick, what are you seeing on the euro there? on the cash market? a lot of trade lately? well, you know, it is slipping. i'm getting a lot of signals from the traders that if you want to see what is going on with the euro wait for the u.s. stock market to open. but, we are testing the 131.5

level, and in futures terms sit down about -- not huge, but it is huge considering that we were close last friday i guess. >> well, interesting that, rick, do you think that like we have hit a level here 240 that is commensurate with the trajectory that bernanke laid out for quantitative easing? have we priced in the move and can we consolidate from here? i feel like the best information is in the market right here, that we have something of a timetable which by the way i'd point out that the market was clamoring that it didn't have. there was a lot of criticism in the federal reserve and a lot of lack of clarity in that quote, unquote substantial improvement in the language out there, and went and put a timetable on it, and there shouldn't be surprises going forward here when it comes to that. >> going forward. i have worked myself into a coma. >> and i think that the market is going to give justification

to ben bernanke one way or another, and not the other way around. the market is the umpire ultimately. >> rick, bob, steve, thank you. >> thank you. >> and 50% from 1.60. >> >> when we come back, we will talk bonds with last year's top ranked fix ed financial officer.

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pimco's global head of the portfolio bond management, and joe is laughing at me, i apologize. >> they sounded out and tried everything they could. >> anyway. don't worry about it, mark. >> he is not worried. >> your boss, bill gross has made the case over and over again to buy treasuries and jeff gunlach was on a couple of days ago and said the same thing. does that change anything? >> well, the market does offer value. the 10-year yield at 240 and investment grade bond portfolios yielding 4.0 to 4.5%. we don't believe that bernanke's forecast is coming to fruition, because the feds are looking at 3% to 3.5% growth and we see a much weaker economy, and therefore we think that the rates are attractive. >> and therefore you must think, and tell me if i'm rong wrong, that the fed is not on auto pilot, and they will adjust based on the numbers?

>> that is absolutely correct. quite frankly, we don't see the economy generates the job growth. and certainly the housing is strong and the energy is strong, but the consumer has a lot of debt, and the unemployment rate is struck dhuturally high, and is going unnoticed is that the global economy is quite slow. looking at what is happening in china and brazil, and the inflation is falling, and if you take it all into context, what you will find is that the rates will prove to be attractive over the next 3 to 6 months. >> mark, when is the turn? >> well, we are going f ing thr the unwinding of risk which is creating the volatility, and the fed suppressed liquidity and risk premiums and now you are seeing the volatility. over time the investors will take a long -term view, and thee yields will attract long term investors. >> mark, thank you for joining us, and offering the perspective which is different from some of the others that we have heard from this morning, and we will

see you. >> and makes sense that the first crappy economic number will go back to 2%. they didn't like it it before, but now it means that the fed will stay active. and now the bets are hoping that it will get bet ter. >> and back to normal. >> and jim cramer -- yes, abnormal for so long, that it does not seem normal. jim cramer's take on the sell-off and also ask him about david tepper's comments. the only underarm low t treatment. axiron can restore t levels to normal in about 2 weeks in most men. axiron is not for use in women or anyone younger than 18 or men with prostate or breast cancer. women, especially those who are or who may become pregnant and children should avoid contact where axiron is applied as unexpected signs of puberty in children or changes in body hair or increased acne in women may occur. report these symptoms to your doctor. tell your doctor about all medical conditions and medications. serious side effects could include increased risk

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let's get down to the new york stock exchange where jim cramer joins us. we have spoken to a lot of people this morning, and a lot of opinions, but david tepper said bottom line stocks are the place to be, and ron baron said the same thing, but i am watching your tweets and you are not saying the same thing. >> well, i'm going to parse tepper, but i am a big fan and he used the key words when the dust settles, but i don't believe it has settled yet, and most people watching say buy now, but he is saying when things start to calm down stocks are best, but they have not calmed down not with the bond market causing stress and $2 trillion etfs and the countries

where they needed the imported capital and the money is coming out fast. it is good and bad and not all good, so those who are saying it is all good are complacent and too bad are negative. >> it is tough to start putting a finger on how far is enough. we are down about 5% at this point. do you watch stocks or something else? do you watch the bond market to find out when it calms down and when it is safe again? >> i am not watching stocks. i am only watching the bond market, because the bond market is completely in control here. >> and we need the 10-year more, and get the 10-year on the top. >> yes, and dave was terrific, because he gave you hope there, but you guys said a moment ago, if we get a bad number in the economy and the rates come down, and you know what, if they do that, you will get a short term blip up, and i still want to sell it. i want the things to be normalized, and when they are normalized, i will like more of

the market. right now i like 40% of the market, tech, regional banks and get into the industrials, be through is another 40% of the market that people are in the wrong. just wrong. i want people to switch the sides to get to the better side for when the economy recovers. >> the thing is a percentage, jim, and like a stochastic thing, and when is the a radioisotope going to decay, but what are the chances off a ragged ugly close today or the channelses off a rebound? a chance that the gains won't hold today? >> yeah, if the market were down this morning and china had not done what it would have done, it would have been a nice close, but instead, a tough period, and the technology could have a nice close. autos and car max could have a nice close, but in general, i'm thinking, eh, it is nothing, you know,nea neither here nor thered let the johnsons and the johnsons come down a little a little more and the

bristol-myers and then i get a little good yield and growth, and we don't have that from a lot of the companies, so could we have a sloppy close? if one guy comes in on a friday afternoon and blows out the e.m. and the minis and will take it down, because people think that the guy knows something about china and we are stuck here saying, holy cow, what happened. i'm wait iing. >> okay. thank you, jim. we will see you in a few minutes. final thought before we leave you for the weekend. next, plus are we doing taper fries? tons of awkward moments and joe feels nick faldo's long putter and i can't believe i said that aloud, squawk@cnbc.com and you can find it there. i will tweet it out as well. we will be right back. we learned a lot of us have known someone who's lived well into their 90s. and that's a great thing.

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it is not 10-year note and i have not traded it in three or four years, and at the end of the day, i buy a lot of bonds and a lot of value in the bonds because tax exempt bonds make sense given the dislocation, but i don't buy a lot of the 10-year note at 240. >> thank you, doug. great having you here. have a great weekend, everybody. time now for "squawk on the street." good friday morning and welcome to "squawk on the street," i'm david faber with jim cramer and scott wapner live from the new york stock exchange. and the markets are trying to recover from a rough two-day stretch. we have seen the dow fall more than 250 points. l let's look at how we are going to open the day. the futures point to a higher open, and we see it there, but we shall see, because the selling went on as the day went on. and let's look at the